4 effective accounting tips for nonprofits during COVID-19
Finances are stressful for nonprofit organizations even in the best of times. Now, during a global pandemic and economic downturn, it’s increasingly more difficult and stressful for organizations to manage their financial status. However, it doesn’t need to be that stressful! With effective accounting tips, strategies and a financial plan in place, your organization can weather the storm. That’s why we’ve put together these top accounting tips that nonprofits can use to manage the financial challenges they’re likely facing:
- Set effective and realistic goals.
- Diversify your funding.
- Realistically budget for operating expenses.
- Consolidate bank accounts.
When making important decisions about your organization’s finances, it can be immensely helpful to work with a nonprofit accountant. Experts in the field are familiar with the accounting difficulties often experienced by nonprofit organizations and how you can address them effectively. They’ll walk through our accounting tips like the ones below with you and make sure your organization is doing everything you can to remain financially stable even during unstable times.
1. Set effective and realistic goals
Many nonprofit organizations have moved toward a real-time nonprofit strategic planning model, whether they’re aware of it or not.
This is the plan that many organizations start using in times of crisis. It involves frequent meetings with the entire team and, more specifically, with executives at the organization to establish short-term goals that the organization can achieve. This plan is dynamic and ever-changing according to the external conditions of the nonprofit’s environment.
These short-term goals are incredibly important to continue earning revenue and to worktoward your mission in times of crisis.
Make sure that your nonprofit is setting goals that are effective and realistic during this time. For instance, it’s probably not feasible to set goals associated with a capital campaign when fundraising is unsteady. However, you may come up with short-term goals such as the following:
- Apply for one grant worth $2,000 within the next week to fund the continuation of one of your nonprofit’s programs.
- Schedule video conferences this week with five different major donors to discuss their ability to give during these difficult times.
- Compile an Amazon wish list by next Tuesday of items needed for your programs to entice donors to give in-kind rather than monetary lump sums.
These short-term goals are all incredibly effective because they are specific, measurable, and have a date when they’re due.
Ask your accounting team what type of budget you have access to during this time. Then, ask what types of short-term goals within that budget will have the highest return on investment (ROI).
2. Diversify your funding
Many of the organizations taking a major hit during these difficult times are those that had all of their eggs in a single basket. For instance, if your organization receives 50 percent of your funding from grants from a single company, but the company closed down as a result of COVID-19, then that funding may be gone, too.
This is why it’s so important to keep your nonprofit’s funding diverse.
Diversified funding may comprise different revenue streams, such as:
- Grants. Grant writing is a great way to fund specific aspects of your nonprofit’s mission.
- Major gifts. Your major donors may not be able to give quite as much right now, but be sure you’re thankful for anything they can contribute.
- Mid-level gifts. Nonprofits too frequently forget the importance of their mid-level donors. However, there are probably more of them than major donors. Also prioritizing your mid-level donors can strengthen your organization’s financial security.
- Events. Although you probably can’t currently host in-person events due to social distancing guidelines, virtual events can supplement some of the revenue that would have otherwise been lost.
Develop a plan to make sure your fundraising is diversified. This way even if you lose some funding sources, you won’t lose everything. It’s a safe and secure approach to fundraising revenue streams.
3. Realistically budget for operating expenses
Financial difficulties can especially impact how your nonprofit maintains a consistent operating budget. Many organizations are finding that it’s difficult to compensate employees or pay the bills.
It’s likely your nonprofit’s operating expenses are fairly steady from month to month. Think very carefully before cutting any vital operation expenses, especially if your nonprofit operates on a fairly lean budget to begin with. Realize that cuts to this aspect of your budget can be detrimental to your organization.
When you’re budgeting for operational expenses, you should consider:
- The types of assistance available for your organization. Nonprofits are eligible for assistance through the Paycheck Protection Program and Emergency Disaster Loans through the CARES Act, and many funds have been established to help organizations through the crisis.
- How much you’ll need to pay for bills and rent. These are steady costs that your organization will need to pay no matter what. However, you may find that usage bills like water or power will decrease if no one is working at the office.
- The total compensation of your employees. Astron Solutions explains that total compensation includes all of the benefits, paycheck, and other rewards that employees get while working for your organization. These should also stay as steady as possible, even during times of economic difficulties.
4. Consolidate bank accounts
If your nonprofit is still using multiple bank accounts to control and manage your money, you could be needlessly complicating your finances while spending more. Paying extra for setup fees, monthly service fees, or even check orders can add up over time. This is money that you could be saving, which is even more important in times of crisis and economic downturn.
Your nonprofit should consolidate your bank accounts and then use the variety of tools at your disposal to organize your financial data.
Make sure your key team members know how all of the systems and processes work so they can enter data correctly and maintain effective organizational processes. Programs such as Quickbooks can help your nonprofit track your restricted and unrestricted funds from a single bank account. You can create labels and categories to keep your data organized.
Your bookkeeper, in particular, should be familiar with the systems you use to maintain your data. This article explains how your bookkeeper should maintain the day-to-day information in your financial systems.
Most of all, try to keep the systems as simple as possible. Although you may have an experienced and professional bookkeeper, don’t make their (or your) job harder than it needs to be. Taking advantage of effective tools and a consolidated system will help you maximize the funding you bring in.
COVID-19 has made financial management even more difficult for nonprofit organizations. However, these accounting tips, an effective financial plan, professional and experienced accounting staff, and a well-managed system, can help your organization weather the storm.